COMMON ERRORS IN BUSINESS VALUATIONS
|
|
- Donald Rafe Cummings
- 5 years ago
- Views:
Transcription
1 27th Annual 1995 FAMILY LAW REFERENCE BOOK Copyright 1995 Los Angeles County Bar Association No reproduction of this book may be made without the express written permission of the Family Law Section of the Los Angeles County Bar Association Editor Liza F. Bercovici COMMON ERRORS IN BUSINESS VALUATIONS by MARK KOHN, CPA, CVA Business valuations are prepared by a variety of professionals, including business appraisers, business brokers, financial analysts, certified public accountants and economists. On occasion, the background of the evaluator preparing the valuation may predispose that individual to serious errors in the valuation of the business. This article will explore some of the most common errors made in business valuations in dissolution proceedings. USE OF A VALUATION METHOD NOT ACCEPTED BY THE COURTS A. Market Value Method A common error in the valuation of businesses - particularly with appraisers who are unfamiliar with the practice of family law - is the application of the 1
2 market value method to privately-held companies. Using the market value method, the appraiser simply applies to the business being valued the price-earnings ratio of a comparable public company. For example, if the business being valued is a cosmetic company, and publicly-held cosmetic companies are selling for twenty times eamings, then the subject cosmetic business would be valued by multiplying by twenty its annual earnings. If the current market price of a publicly-held cosmetic company were $50 per share, and there were ten million shares of stock outstanding, then the market value of the company would be $500 million. If the marketplace currently expects that the company will have annual eamings of $100 million dollars, then the price-earnings ratio would be 500 to 100, or 5 to 1. Using this approach, the privately-held cosmetics company with $2 million in earnings would be valued at $10 million, by using the price-earnings ratio of 5 to 1, or five times annual earnings. Two cases, In Re Marriage of Lotz (1981) 120 Cal.App.3d 379, 174 Cal. Rptr. 618, and In Re Marriage of Hewitson (1983) 142 CaI.App.3d 874, 191 CaI.Rptr. 392, have held that relying solely on the price-eamings ratio of publicly-traded corporations to value closely-held corporations is error. These cases have reasoned that one cannot compare the stock of a business owned by a single shareholder, responsible to no one, that cannot be easily sold, to a company that is publicly-held and easily sold. Furthermore, an owner of a private company may eliminate most of the corporate profits by paying himself a large salary; a public company will not arbitrarily eliminate profits by paying out large salaries. B. Discounted Future Earnings Method Another valuation method that is occasionally used is the "discounted future earnings method." This method equates the value of a company to the present discounted value of the company's expected future eamings. The evaluator, for example, may determine that the company will earn $2 million in the two years following valuation, $2.5 million in the next two years, and $3 million for each year thereafter. The present discounted value of those millions, after adding in the residual value of the business at the end of the cash flow stream, constitutes the business' value. This approach, while acceptable as a valuation method for certain businesses, should not be used in valuing a professional practice. As the court in Marriage of Fortier (1973) 34 CaI.App.3d 384, 109 CaI.Rptr. 915, held: "Since the philosophy of the community property system is that a community interest can be acquired only during the time of the marriage, it would then be inconsistent with that philosophy to assign to any community interest the value of post-marital efforts of either spouse." In Re Marriage of King (1983) 150 Cal.App.3d 304, 197 Cal. Rptr. 716, similarly rejected a valuation where the appraisal was "replete with references to post-separation efforts of husband." II. USE OF VALUATION METHODS THAT DO NOT INCLUDE ALL OF THE ASSETS OF THE BUSINESS There are certain accepted formulas and rules of thumb often used in valuing a small business. An appraiser relying on a particular formula or rule of thumb should keep in mind that many formulas addressing the valuation of small businesses do not necessarily consider all of the assets of the business. For example, one formula used to 2
3 value a retail auto parts business produces an indicated value for the fixed assets, the lease and the "intangibles" of the business, but it omits from the valuation the company's cash in hand, accounts receivable, prepaid expenses and all of its liabilities. Another method produces an indicated value for the company's lease and intangibles, but omits from the valuation the fixed and current assets of the company and the business' liabilities. Similarly, the calculation of goodwill may be so complicated that it becomes the exclusive focus of attention. In one recent trial court case, an appraiser ended up using goodwill alone as the value of the business, inadvertently omitting consideration of all other assets and liabilities. III. APPLICATION OF VALUE MULTIPLES TO THE WRONG INCOME STREAM Certain valuation methods use income multiples to determine goodwill. In one industry, for example, goodwill may be a multiple of the company's eamings. To properly figure goodwill, however, an appraiser will need to determine whether goodwill in that industry is based on after-tax or pre-tax earnings. The difference may be significant. Imagine, for example, that a company's pre-tax earnings are $100,000 and the after-tax eamings are $70,000. The difference in the goodwill value, at five times earnings, will be $150,000 - the difference between $500,000 and $350,000 - a thirty percent error. Similarly, in applying valuation methods that use a multiple of gross revenue, one should guard against the inadvertent use of a multiple of net income, or the use of income where cash flow instead is required. IV. OMISSION OF MINORITY DISCOUNTS Imagine two identical businesses, with the same sales and profits, except that Company A is owned by a single stockholder, whereas Company B is owned equally by five shareholders. A valuation of both businesses concludes that each company is worth $25 million. The stock of Company A's sole stockholder is accordingly worth $25 million. Presumably, the stock of Company B's five equal shareholders is also each worth $5 million. The valuation assigned to Company B's shareholders' stock is wrong. The value of each of Company B's shareholders' stock must be discounted because each stockholder has only a minority interest in the company. The Company B shareholder cannot dictate company policy (unlike the sole stockholder of Company A) and he cannot control profits (as can Company A's stockholder). To illustrate this, assume that the sole stockholder of Company A sold his shares to a new owner on the express condition that the new owner could not change sales policies, production methods, personnel or purchasing practices. The new buyer would technically own Company A, but he would have no real control over it. Presumably, he would pay much less for the stock than if he were able to run the company however he chose. The new owner is simply a passive investor; if he had true control over the company, he would be an active owner. A passive investor will pay less because he has no control over his investment. 3
4 V. FAILURE TO CONSIDER UNIQUE EVENTS In calculating goodwill, a common practice is to average the more recent years' income and expenses to arrive at an average net income, which then forms the basis for a goodwill calculation. In calculating goodwill, it is usually appropriate to eliminate all atypical income and expense for the company, because the purpose of the valuation is to determine the value of the business without the effect of unusual events which might cause temporary fluctuations in the market for the goods or services. A prospective buyer, for example, would probably ignore unusual occurrences such as earthquakes, floods and fire in determining business value. The buyer will want to know the value of the business under normal circumstances. The appraiser must therefore eliminate the effects of unusual, non-recurring income or losses from the company's financial statements. For example, the costs of nonrecurring litigation should be "normalized" by the appraiser, as should the financial effects of an earthquake. The appraiser should determine if anything unusual has happened during the years being considered, and the necessary adjustments should be made. VI. FAILURE TO ADJUST GOODWILL TO RISK FACTORS Goodwill is usually found where a business both generates and appears likely to continue generating income which exceeds the norm for that type of business. One commonly-used goodwill calculation incorporates at least two steps - a determination of the business' excess income and an assessment of whether the excess income is likely to continue. An appraiser may be valuing an accounting or legal practice using methods that are perfectly appropriate to the valuation of those practices, but the result will be flawed if those practices are unusual in nature. For example, a law practice may be highly specialized with a unique referral source. A law firm focussed primarily on asbestos litigation, for example, which was at one time a lucrative area of practice, typifies the problem. The likelihood of continued future eamings at previous levels in such a firm would be much different from the eamings of a law firm with a wide area of practice which is not dependent on a single or atypical referral source. A manufacturer may be very successful, and his product may be similar to others in the industry, but the success may be dependent on a patent that is about to expire. A retail store may be very successful, but the neighborhood may be full of people who work at the nearby General Motors plant, which has just announced it is about to close. A local hardware store may be thriving, but a hardware chain may be building a massive store nearby. Furthermore, using the prior example, it is not even necessary that the General Motors plant announce a closing to affect the valuation of the retail store. Even if no such announcement were made, one must at least consider that the success of the retail business may depend on the General Motor plant's continued operation. The risk factor for the retail business must consider the risk factor of that General Motors plant. VII. OMISSION OF CERTAIN ASSETS OR LIABILITIES Certain assets and liabilities are easily overlooked because of their nature. One such asset is "work in progress." Work in progress is a form of accounts receivable for services rendered, for which no invoices have yet been issued. For certain businesses, work in progress can form a substantial portion of the accounts receivable. For example, a construction company typically bills only when a significant part of the job 4
5 is completed. The value of those unbilled services needs to be reflected as an asset of the business. Another asset to be considered is the value of a lease. A below-market lease may be a considerable asset and should likewise be reflected in assessing the business' value. VIII. OVERLY THEORETICAL ANALYSES Some business appraisals are prepared by experts who are theoretically inclined. Their appraisals may be based upon complex theoretical assumptions and analyses. When the same business is valued by a business broker, however, the broker may give a much different value. The business broker operates in the real world, and he knows how that business will be sold on the market. Complex theoretical analysis is rarely the basis for determining real world value. An appraisal based on theoretical analysis is often out of touch with reality. IX. BUY-SELL AGREEMENTS A buy-sell agreement may form part of a firm's partnership agreement, goveming the terms of a partner's buy-out if the partner leaves or dies or a new partner wants in. A buy-sell agreement may also be used to determine the value for the transfer of shares in a stockholders agreement. In family law valuations, depending on the circumstances, it is sometimes appropriate to use buy-sell agreements. In the valuation of professional practices, for example, the courts have held that a buy-sell agreement may be considered, but will not be determinative. Marriage of Slater (1979) 100 CaI.App.3d 241, 160 CaI.Rptr A recent case, Marriage of Nichols (1994) 27 CaI.App.4th 661,33 CaI.Rptr.2d 13, concluded that it was not an abuse of discretion for the trial court to value the husband's shareholder interest in his law firm based on the formula set forth in his firm's stock purchase agreement. The Nichols stock purchase agreement excluded the value of accounts receivable and work in progress although in Marriage of Lopez (1974) 38 Cal.App.3d 93, 113 Cal. Rptr. 237, the court held that these should be included in valuing a law practice interest. The court in Nichols, supra, found that the stock purchase agreement, which the firm had consistently adhered to with every shareholder who had retired or left, was an appropriate valuation method in this particular case. The Nichols court recognized that the law firm at issue was a large firm where the shareholder did not share in the firm's earnings, but was compensated as an employee based upon his own productivity and length of service to the firm. In assessing whether a buy-sell agreement should be determinative, the Nichols Court set forth the following criteria: The proximity of the date of the buy-sell agreement to the date of separation to ensure that the agreement was not entered into in contemplation of marital dissolution; The existence of an independent motive for entering into the buy-sell agreement, such as the firm's desire to protect all partners from the possible effects of a partnership dissolution; and The similarity of the value resulting from the agreement's purchase price formula to the value produced by other approaches. 5
6 Mrs. Nichols was, however, awarded an interest in her husband's professional goodwill. The court reasoned that the stock purchase agreement did not determine the lawyer's goodwill, and that Mr. Nichols had personal goodwill whether he remained with the firm or not. In effect, the court said, goodwill cannot be eliminated merely by a recital in a buy-sell agreement. "It is a community asset because husband's experience, reputation and skill, which enabled him to command this high income, were developed while he was married to wife. It directly creates excess income for husband whether he stays with his firm or strikes out on his own" Marriage of Fenton (1982) 134 CaI.App.3d 451,463, 184 CaI.Rptr Because Nichols upheld a buy-sell agreement as to accounts receivable and work in progress, but not as to goodwill, it appears that trial courts will have to examine carefully, on a case-by-case basis, the facts behind individual buy-sell agreements. X. CONCLUSION Business appraisals require close attention both to theoretical and practical considerations. Attorneys and clients typically want a speedy, Iow-cost appraisal, but that approach invites errors such as the ones described above. In appraising businesses in family law actions, the appraiser should keep in mind these possible errors and avoid such pitfalls. 6
DETERMINING AGENCY VALUE PART 2
DETERMINING AGENCY VALUE PART 2 NORMALIZING THE INCOME STATEMENT By: Chuck Coyne, ASA This month we continue our discussion of how to determine an agency s value. Last month we briefly discussed some of
More informationBusiness Valuation More Art Than Science
Business Valuation More Art Than Science One of the more difficult aspects of business planning is business valuation. It is also one of the more important aspects. While owners of closely held businesses
More informationValuation Issues and Divorce
Lori Wilhelmy, ASA 513.813.4134 LWilhelmy@ComStockAdvisors.com Valuation Issues and Divorce The valuation of a closely held business for divorce purposes is based on valuation theory, state statute and
More informationVALUATION OF ASSETS IN DIVORCE
The University of Texas School of Law Presented: 8 th Annual Family Law On The Front Lines June 19-20, 2008 Galveston, Texas VALUATION OF ASSETS IN DIVORCE RANDALL B. WILHITE LOOPER REED & MCGRAW, P.C.
More information[PROPOSED REVISED] CHAPTER 16 LOS ANGELES COUNTY COURT RULES
[PROPOSED REVISED] CHAPTER 16 LOS ANGELES COUNTY COURT RULES Set forth below is a proposed complete revision of Chapter 16, Eminent Domain, of the Local Rules. September 30, 2009 Commissioner Bruce E.
More informationPlease find attached a brief overview of our services and an informative review of Chase Group s SBA-compliant business valuation services.
THE CHASE GROUP - Business Brokers Mergers, Acquisitions, Financing & Valuation Services 41185 Golden Gate Circle, Suite 202 Murrieta, CA 92562 951.541.0414 tel 951.303.8157 fax www.chasegroup.us 2012
More information2018 Tennessee Judicial Conference March 7, 2018 Montgomery Bell State Park
2018 Tennessee Judicial Conference March 7, 2018 Montgomery Bell State Park The Essentials of Business Valuation For Tennessee Judges (Why are the Experts so Far Apart?) Presented by: Robert Vance, CPA,
More informationPractice Valuations. Welcome To The Digital Learning Center. Today s Presentation. Course Faculty. Presented by. What s Your Practice Worth?
Welcome To The Digital Learning Center Presented by Your Partner In Building High Performance Practices Today s Presentation Practice Valuations What s Your Practice Worth? Course Faculty R. Thomas (Tom)
More informationTHE ART OF BUSINESS VALUATION
BUSINESS VALUATIONS GROWING THE ART OF BUSINESS VALUATION Douglas A. Michel, CPA/ABV, CVA & Alex E. Kummer, CPA, CVA, Clark Schaefer Hackett THE VALUE OF YOUR BUSINESS Steve Lumley, LGI CFO BUY SELL AGREEMENTS
More informationPersonal vs. Enterprise Goodwill: Where Are We and How Do I Deal With It? By: Gary R. Trugman CPA/ABV, MCBA, ASA, MVS
Personal vs. Enterprise Goodwill: Where Are We and How Do I Deal With It? By: Gary R. Trugman CPA/ABV, MCBA, ASA, MVS Speaker Biography Gary R. Trugman is the President of Trugman Valuation Associates,
More informationTennessee Bar Association Webcast August 23, 2018
Tennessee Bar Association Webcast August 23, 2018 The Essentials of Business Valuation For Tennessee Attorneys (Why are the Experts so Far Apart?) As Presented to the 2018 Tennessee Judicial Conference,
More informationUse of Comparables. Claims Prevention Bulletin [CP-17-E] March 1996
March 1996 The use of comparables arises almost daily for all appraisers. especially those engaged in residential practice, where appraisals are being prepared for mortgage underwriting purposes. That
More informationBRAD DAVIDSON. He lives in Annapolis Maryland with Lynne, his wife of 25 years. They have two children. I:\Knowledge Base\Presentations\CV-MACPA.
1 BRAD DAVIDSON Brad Davidson is President of SPARDATA Business Valuation Experts of Elkridge Maryland and is a recognized expert in the valuations field. Organizations which have invited Davidson to lecture
More informationWhat New Landlords Need to
2016 Printing What New Landlords Need to know about leasing property Suggestions for the Prospective Landlord This brochure was prepared courtesy of the Georgia Association of REALTORS to help owners with
More information10 Common Mistakes in Valuing ASCs and How to Avoid Them
10 Common Mistakes in Valuing ASCs and How to Avoid Them Presented by: Hunter Outcalt, MTx, CPA Director, HealthCare Appraisers HealthCare Appraisers, Inc. HealthCare Appraisers is the nation s leading
More information2016 Association of Accredited Small Business Consultants. All rights reserved.
BUSINESS VALUATION 2016 Association of Accredited Small Business Consultants. All rights reserved. This information is furnished with the understanding that the publisher is not engaged in rendering legal,
More informationVIEWPOINT ON VALUE. Avoid common pitfalls when applying the income approach 3 ways valuation experts adjust financial statements MARCH/APRIL 2018
VIEWPOINT ON VALUE MARCH/APRIL 2018 Avoid common pitfalls when applying the income approach 3 ways valuation experts adjust financial statements Estate of Kollsman The valuation of art... and the art of
More informationCenter for Plain English Accounting AICPA s National A&A Resource Center available exclusively to PCPS members
REPORT February 22, 2017 Center for Plain English Accounting AICPA s National A&A Resource Center available exclusively to PCPS members ASU 2017-04: Goodwill Simplifications Implementation Considerations
More information3 things about Livingstone s Guide to Business Valuation
Book Information 3 things about Livingstone s Guide to Business Valuation 1. Designed to provide an introduction for students not experienced with the subject 2. Also serves as a refresher for those familiar
More informationAVA. Accredited Valuation Analyst - AVA Exam.
NACVA AVA Accredited Valuation Analyst - AVA Exam TYPE: DEMO http://www.examskey.com/ava.html Examskey NACVA AVA exam demo product is here for you to test the quality of the product. This NACVA AVA demo
More informationValuing Specialty and Emergency Practices. Lorraine Monheiser List, CPA, CVA Summit Veterinary Advisors, Littleton, CO, USA
Valuing Specialty and Emergency Practices INTERNATIONAL VETERINARY EMERGENCY AND CRITICAL CARE SYMPOSIUM 2010 Lorraine Monheiser List, CPA, CVA Summit Veterinary Advisors, Littleton, CO, USA 2010 Used
More informationBUSINESS VALUATIONS: FUNDAMENTALS, TECHNIQUES AND THEORY (FT&T) CHAPTER 1
Fundamentals, Techniques & Theory INTRODUCTION TO BUSINESS VALUATION BUSINESS VALUATIONS: FUNDAMENTALS, TECHNIQUES AND THEORY (FT&T) CHAPTER 1 REVIEW QUESTIONS 1995 2013 by National Association of Certified
More informationPrepared by: Alex Socratous For My High School Students
Prepared by: Alex Socratous For My High School Students CHAPTER 2 CAPITAL ASSETS DEPRECIATION CAPITAL ASSETS Capital assets are long-lived assets that are used in the operations of a business and are not
More informationChapter 6: Auto and RV Dealership Asset Valuation (Equipment)
Chapter 6: Auto and RV Dealership Asset Valuation (Equipment) Knowing how much the dealership s furniture, fixtures and equipment are worth will determine the amount of goodwill that is being paid as part
More informationAICPA Valuation Services VS Section Statements on Standards for Valuation Services VS Section 100 Valuation of a Business, Business Ownership
AICPA Valuation Services VS Section Statements on Standards for Valuation Services VS Section 100 Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset Calculation Engagements
More informationSri Lanka Accounting Standard LKAS 40. Investment Property
Sri Lanka Accounting Standard LKAS 40 Investment Property LKAS 40 CONTENTS SRI LANKA ACCOUNTING STANDARD LKAS 40 INVESTMENT PROPERTY paragraphs OBJECTIVE 1 SCOPE 2 DEFINITIONS 5 CLASSIFICATION OF PROPERTY
More informationPresentation to The New England Graduate Accounting Studies Conference June 18, 2014 Roger Winsby, President Axiom Valuation Solutions
Current Developments in Business Valuation Presentation to The New England Graduate Accounting Studies Conference June 18, 2014 Roger Winsby, President Axiom Valuation Solutions Roger M. Winsby President
More informationIn December 2003 the Board issued a revised IAS 40 as part of its initial agenda of technical projects.
IAS 40 Investment Property In April 2001 the International Accounting Standards Board (the Board) adopted IAS 40 Investment Property, which had originally been issued by the International Accounting Standards
More informationEN Official Journal of the European Union L 320/323
29.11.2008 EN Official Journal of the European Union L 320/323 INTERNATIONAL ACCOUNTING STANDARD 40 Investment property OBJECTIVE 1 The objective of this standard is to prescribe the accounting treatment
More informationEN Official Journal of the European Union L 320/373
29.11.2008 EN Official Journal of the European Union L 320/373 INTERNATIONAL FINANCIAL REPORTING STANDARD 3 Business combinations OBJECTIVE 1 The objective of this IFRS is to specify the financial reporting
More informationIntroduction. Due Diligence
Introduction When purchasing a business or company, the prospective purchaser must turn his or her mind to a number of preliminary issues. This introduction is intended to point out those issues and highlight
More informationV aluation. Concepts. Adding up the little stuff <> Normalization adjustments under the income approach. inside:
V aluation Concepts inside: Adding up the little stuff Normalization adjustments under the income approach Lack of control discounts don t always apply to minority interests Are S corporations worth
More informationContent Contributed by the Appraisal Database and Mentoring Services (ADAM) Around the Valuation World in 90 Minutes Monthly Webzine
Content Contributed by the Appraisal Database and Mentoring Services (ADAM) Around the Valuation World in 90 Minutes Monthly Webzine DISCLAIMER All rights reserved. No part of this work covered by the
More informationCalifornia s Eminent Domain Law authorizes
Understanding Goodwill Appraisals By Patrick M. Millar, ASA Section 1263.510 of California s Eminent Domain Law authorizes compensation for loss of business goodwill to owners of businesses operating on
More informationReal Estate Appraisal Professional Standards
Real Estate Appraisal Professional Standards Summary This proposal is to amend the Florida Administrative Code (FAC) to allow a Certified Residential Appraiser or a Certified General Appraiser to use standards
More informationBUSINESS VALUATIONS: FUNDAMENTALS, TECHNIQUES AND THEORY (FT&T) CHAPTER 6
Fundamentals, Techniques & Theory COMMONLY USED METHODS OF VALUATION BUSINESS VALUATIONS: FUNDAMENTALS, TECHNIQUES AND THEORY (FT&T) CHAPTER 6 REVIEW QUESTIONS 1995 2013 by National Association of Certified
More informationIn December 2003 the IASB issued a revised IAS 40 as part of its initial agenda of technical projects.
International Accounting Standard 40 Investment Property In April 2001 the International Accounting Standards Board (IASB) adopted IAS 40 Investment Property, which had originally been issued by the International
More informationSri Lanka Accounting Standard-LKAS 17. Leases
Sri Lanka Accounting Standard-LKAS 17 Leases -516- Sri Lanka Accounting Standard-LKAS 17 Leases Sri Lanka Accounting Standard LKAS 17 Leases is set out in paragraphs 1 69. All the paragraphs have equal
More informationBusiness Combinations
Business Combinations Indian Accounting Standard (Ind AS) 103 Business Combinations Contents Paragraphs OBJECTIVE 1 SCOPE 2 IDENTIFYING A BUSINESS COMBINATION 3 THE ACQUISITION METHOD 4 53 Identifying
More informationPurchase Price Allocations ASC 805 Business Combinations
Purchase Price Allocations Introduction Mergers, acquisitions, and other business transactions have numerous accounting and tax implications. Buyers generally identify and report the fair values of the
More informationBUSINESS VALUATIONS UNDER CALIFORNIA CORPORATIONS CODE SECTION 2000
BUSINESS VALUATIONS UNDER CALIFORNIA CORPORATIONS CODE SECTION 2000 Prepared by: Business Valuation Section of the Litigation Sections of the March 2000 The information contained herein is protected under
More informationIFRS - 3. Business Combinations. By:
IFRS - 3 Business Combinations Objective 1. The purpose of this IFRS is to specify to disclose financial information by an entity when carrying out a business combination. In particular, specifies that
More informationMODULE 7-A: APPRAISALS, BPOS AND USPAP
MODULE 7-A: APPRAISALS, BPOS AND USPAP LEARNING OBJECTIVES One of the most challenging aspects of the real estate business is the development of prices or values of the rights to real estate. Buyers and
More informationThe Landlord and Tenant Act 1954 governs the rights and obligations of landlords and tenants of
The Landlord & Tenant Act 1954 and Security of Tenure The Landlord and Tenant Act 1954 governs the rights and obligations of landlords and tenants of premises which are occupied for business purposes.
More informationIntangible assets have continually grown in their importance as a driver of value in businesses, in particular over the past thirty years.
Intangible assets have continually grown in their importance as a driver of value in businesses, in particular over the past thirty years. In the 1980s large, publicly-traded company values were generally
More informationBroker. Basic Business Appraisal. Chapter 9. Copyright Gold Coast Schools 1
Broker Chapter 9 Basic Business Appraisal 1 Learning Objectives Describe the characteristics of the legal entities a business appraiser may encounter List at least 5 reasons for a business appraisal List
More informationInternational Accounting Standard 17 Leases. Objective. Scope. Definitions IAS 17
International Accounting Standard 17 Leases Objective 1 The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation
More informationLeaseCalcs: How to ruin EBITDA results: Renew your lease.
LeaseCalcs: How to ruin EBITDA results: Renew your lease. Marc A. Maiona June 20, 2015 Your client just renewed their lease and wrecked EBITDA in the process If You Care About EBITDA, You Shouldn t Renew.
More informationHow to Read a Real Estate Appraisal Report
How to Read a Real Estate Appraisal Report Much of the private, corporate and public wealth of the world consists of real estate. The magnitude of this fundamental resource creates a need for informed
More informationMPEEM The New and Improved Residual Technique of Reserve Valuation
MPEEM The New and Improved Residual Technique of Reserve Valuation Prepared by Alan K. Stagg, PG, CMA Stagg Resource Consultants, Inc. Cross Lanes, West Virginia ABSTRACT The residual technique of reserve
More informationContract-Related Intangible
Income Tax Insights Valuation of Contract-Related Intangible Assets Robert F. Reilly, CPA The valuation of contract-related intangible assets is often an issue in matters related to income tax, gift tax,
More informationIn December 2003 the Board issued a revised IAS 40 as part of its initial agenda of technical projects.
IAS Standard 40 Investment Property In April 2001 the International Accounting Standards Board (the Board) adopted IAS 40 Investment Property, which had originally been issued by the International Accounting
More informationSSAP 14 STATEMENT OF STANDARD ACCOUNTING PRACTICE 14 LEASES
SSAP 14 STATEMENT OF STANDARD ACCOUNTING PRACTICE 14 LEASES (Issued October 1987; revised February 2000) The standards, which have been set in bold italic type, should be read in the context of the background
More informationGoodwill Valuation Considerations Involving Private Companies and Professional Practices
FINANCIAL VALUATION - Goodwill Valuation Goodwill Valuation Considerations Involving Private Companies and Professional Practices The valuation of either business (also called institutional) goodwill or
More informationLKAS 17 Sri Lanka Accounting Standard LKAS 17
Sri Lanka Accounting Standard LKAS 17 Leases CONTENTS SRI LANKA ACCOUNTING STANDARD LKAS 17 LEASES paragraphs OBJECTIVE 1 SCOPE 2 DEFINITIONS 4 CLASSIFICATION OF LEASES 7 LEASES IN THE FINANCIAL STATEMENTS
More informationPlant assets are resources that have
10-1 LEARNING OBJECTIVE 1 Explain the accounting for plant asset expenditures. Plant assets are resources that have physical substance (a definite size and shape), are used in the operations of a business,
More informationChapter 3 Business Valuation Report
CHAPTER 3: BUSINESS VALUATION REPORT Chapter 3 Business Valuation Report A1. Pre-IPO Valuation Need Company Restructuring and Financing It is not unusual that companies undergo series of restructuring
More informationUNIT, SUMMATION, AND BUSINESS VALUE IN PROPERTY TAX VALUATIONS
UNIT, SUMMATION, AND BUSINESS VALUE IN PROPERTY TAX VALUATIONS ROBERT F. REILLY Although the differences between unit value, summation value, and business value are subtle, the distinction is important
More informationGeorgia Tech Financial Analysis Lab 800 West Peachtree Street NW Atlanta, GA
800 West Peachtree Street NW Atlanta, GA 30308-0520 404-894 - 4395 http://www.scheller.gatech.edu/finlab Dr. Charles W. Mulford, Director Invesco Chair and Professor of Accounting charles.mulford@scheller.gatech.edu
More informationOffice of Legislative Services Background Report The Assessment of Real Property: Answers to Frequently Asked Questions
Office of Legislative Services Background Report The Assessment of Real Property: Answers to Frequently Asked Questions OLS Background Report No. 120 Prepared By: Local Government Date Prepared: New Jersey
More informationMARKET VALUE BASIS OF VALUATION
4.2 INTERNATIONAL VALUATION STANDARDS 1 MARKET VALUE BASIS OF VALUATION This Standard should be read in the context of the background material and implementation guidance contained in General Valuation
More information619 STANDARD 2: REAL PROPERTY APPRAISAL, REPORTING
619 STANDARD 2: REAL PROPERTY APPRAISAL, REPORTING 620 In reporting the results of a real property appraisal, an appraiser must communicate each analysis, 621 opinion, and conclusion in a manner that is
More informationSri Lanka Accounting Standard-LKAS 40. Investment Property
Sri Lanka Accounting Standard-LKAS 40 Investment Property CONTENTS SRI LANKA ACCOUNTING STANDARD-LKAS 40 INVESTMENT PROPERTY paragraphs OBJECTIVE 1 SCOPE 2-4 DEFINITIONS 5-15 RECOGNITION 16-19 MEASUREMENT
More informationI. FRACTIONAL INTERESTS IN GENERAL 1 II. CONTROL/DECONTROL DISCOUNTING 6
I. FRACTIONAL INTERESTS IN GENERAL 1 II. CONTROL/DECONTROL DISCOUNTING 6 A. Unity of Ownership Squelched Rev. Rul. 93-12 and its Progeny 6 B. Aggregation of Various Interests in Same Property 11 C. Stock
More informationUNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended
More informationMisconceptions about Across-the-Fence Methodology
Misconceptions about Across-the-Fence Methodology BY JOHN SCHMICK Across-the-fence methodology (ATF) is an appraisal tool frequently used in valuation assignments where the subject is part of railroad
More informationCONTRIBUTION AGREEMENT DATED AS OF, 2008 AMONG SELLING COMPANY LLC SELLING COMPANY TOO LLC [NEWCO] SC ACQUISITION CO. AND SCT ACQUISITION CO.
DRAFT CONTRIBUTION AGREEMENT DATED AS OF, 2008 AMONG SELLING COMPANY LLC SELLING COMPANY TOO LLC [NEWCO] SC ACQUISITION CO. AND SCT ACQUISITION CO. CONTRIBUTION AGREEMENT This Contribution Agreement (this
More informationBusiness Combinations IFRS 3
CA Sandesh Mundra Business Combinations IFRS 3 For many men, the acquisition of wealth does not end their troubles, it only changes them. - Lucius Annaeus Seneca Lets get some of the basics correct.. We
More informationWHAT EVERY ATTORNEY NEEDS TO KNOW ABOUT BUSINESS VALUATION AND WHY
NEEDS TO KNOW ABOUT BUSINESS VALUATION ALAN L. TOLMAS, CPA/ABV/CFF, ASA PRINCIPAL/FOUNDER 972.931.1800 atolmas@texff.com SOLO & SMALL FIRM SECTION FEBRUARY 1, 2012 LUNCHEON MEETING NEEDS TO KNOW ABOUT
More informationBUSINESS GUIDE. Resource Booklet
BUSINESS GUIDE Resource Booklet Onsite Law practices in Conveyancing, Business Law and Wills. We provide advice in plain English in a cost efficient way. All client referrals to us are treated with courtesy
More informationAMERICAN SOCIETY OF APPRAISERS. Procedural Guidelines. PG-2 Valuation of Partial Ownership Interests
AMERICAN SOCIETY OF APPRAISERS Procedural Guidelines PG-2 Valuation of Partial Ownership Interests I. Preamble A. Business valuation professionals are frequently engaged as independent financial appraisers
More informationBusiness Valuation Methods. Submitted by Paul Marquez
Business Valuation Methods Submitted by Paul Marquez 59 I. BUSINESS VALUATION METHODS A. Rules of Thumb B. Asset-Based Methods of Valuation C. Income Statement Methods of Valuation D. Market-Based Methods
More informationIFRS Training. IAS 38 Intangible Assets. Professional Advisory Services
IFRS Training IAS 38 Intangible Assets Table of Contents Section 1 Overview 2 Introduction to Intangible Assets 3 Recognition and Initial Measurement 4 Internally Generated Intangible Assets 5 Measurement
More informationBusiness Combinations
International Financial Reporting Standard 3 Business Combinations This version was issued in January 2008. Its effective date is 1 July 2009. It includes amendments resulting from IFRSs issued up to 31
More informationNET WORTH 78 CHAPTER 3: PERSONAL FINANCIAL STATEMENTS: PREPARATION AND ANALYSIS
NET WORTH The net worth of the client as reflected on the balance sheet represents the amount of total equity (assets - liabilities = net worth) a client has accumulated as of the date of the balance sheet.
More informationASC 842 (Leases)
ASC 842 (Leases) On February 25, 2016 the Financial Accounting Standards Board of the United States (FASB) issued substantial new guidance on the treatment of leases for both lessees and lessors. The FASB
More informationNew Zealand Equivalent to International Accounting Standard 40 Investment Property (NZ IAS 40)
New Zealand Equivalent to International Accounting Standard 40 Investment Property (NZ IAS 40) Issued November 2004 and incorporates amendments up to and inlcuding 28 February 2014 This Standard was issued
More informationThe Valuation Process An Interview with Shannon P. Pratt
This article is reprinted with permission from SmallBusinessLearning.net The Valuation Process An Interview with Shannon P. Pratt Often called the "architect of modern business valuation theory," Shannon
More informationGENERAL ASSESSMENT DEFINITIONS
21st Century Appraisals, Inc. GENERAL ASSESSMENT DEFINITIONS Ad Valorem tax. A tax levied in proportion to the value of the thing(s) being taxed. Exclusive of exemptions, use-value assessment laws, and
More informationWilliam & Mary Law School Scholarship Repository
College of William & Mary Law School William & Mary Law School Scholarship Repository William & Mary Annual Tax Conference Conferences, Events, and Lectures 1971 Leasing Arrangements Lawrence P. Roesen
More informationROCKFORD AREA HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS and INDEPENDENT AUDITOR S REPORT. For the years ended June 30, 2014 and 2013
FINANCIAL STATEMENTS and INDEPENDENT AUDITOR S REPORT For the years ended June 30, 2014 and 2013 TABLE OF CONTENTS Independent Auditor s Report 1 Statements of Financial Position 2 Statements of Activities
More informationSLAS 19 (Revised 2000) Sri Lanka Accounting Standard SLAS 19 (Revised 2000) LEASES
Sri Lanka Accounting Standard SLAS 19 (Revised 2000) LEASES 265 Introduction This Standard (SLAS 19 (revised 2000) ) replaces Sri Lanka Accounting Standard SLAS 19, Accounting for Leases ( the original
More informationThe Financial Accounting Standards Board
V A L U A T I O N How the New Leases Standard May Impact Business Valuations By Judith H. O Dell, CPA, CVA The Financial Accounting Standards Board issued the 485 page Leases Standard (Topic 842) in February,
More informationProving Depreciation
Institute for Professionals in Taxation 40 th Annual Property Tax Symposium Tucson, Arizona Proving Depreciation Presentation Concepts and Content: Kathy G. Spletter, ASA Stancil & Co. Irving, Texas kathy.spletter@stancilco.com
More informationBegin with the End in Mind
Begin with the End in Mind Len Jones, DVM CEO & Founder Nations fastest growing veterinary brokerage Total Prac*ce Solu*ons Group is na*onal brokerage company, made up of veterinarians, a
More informationReal Estate & REIT Modeling: Quiz Questions Module 1 Accounting, Overview & Key Metrics
Real Estate & REIT Modeling: Quiz Questions Module 1 Accounting, Overview & Key Metrics 1. How are REITs different from normal companies? a. Unlike normal companies, REITs are not required to pay income
More informationEmerging Issues Task Force. EITF Agenda Committee Report Supplement. Mining Industry Issues November 5, 2003
1103RPTMNG Emerging Issues Task Force Agenda Committee Report Supplement Mining Industry Issues November 5, 2003 Potential New Issues Page(s) 1. Whether Mining Rights are Tangible or Intangible Assets
More informationILLINOIS HOUSING DEVELOPMENT AUTHORITY APPRAISAL SCOPE AND GUIDELINES December 2015
ILLINOIS HOUSING DEVELOPMENT AUTHORITY APPRAISAL SCOPE AND GUIDELINES December 2015 As part of the Common Application for Multifamily Financing, the Illinois Housing Development Authority (IHDA) requires
More informationWYOMING DEPARTMENT OF REVENUE CHAPTER 7 PROPERTY TAX VALUATION METHODOLOGY AND ASSESSMENT (DEPARTMENT ASSESSMENTS)
CHAPTER 7 PROPERTY TAX VALUATION METHODOLOGY AND ASSESSMENT (DEPARTMENT ASSESSMENTS) Section 1. Authority. These Rules are promulgated under the authority of W.S. 39-11-102(b). Section 2. Purpose of Rules.
More informationACCOUNTING FOR ACQUISITIONS RESULTING IN COMBINATIONS OF ENTITIES OR OPERATIONS
Institute of Chartered Accountants of New Zealand FINANCIAL REPORTING NO. 36 OCTOBER 2001 ACCOUNTING FOR ACQUISITIONS RESULTING IN COMBINATIONS OF ENTITIES OR OPERATIONS Issued by the Financial Reporting
More informationVALUATION OF PROPERTY. property. REALTORS need to keep in mind first, that the Occupational Code limits what
VALUATION OF PROPERTY I. INTRODUCTION REALTORS are often asked for their opinion on the value of a particular piece of property. REALTORS need to keep in mind first, that the Occupational Code limits what
More informationabsorption rate ad valorem appraisal broker price opinion capital gain
absorption rate The estimated time required to sell or lease property within a designated area at its fair market value. ad valorem Real estate taxes imposed on property based on its assessed value. appraisal
More informationAnalytical Differences between Business Valuations, Unit Valuations, and Summation Valuations
Property Tax Valuation Insights Analytical Differences between Business Valuations, Unit Valuations, and Summation Valuations Robert F. Reilly, CPA Taxing authorities and property owners (and even some
More informationGuide to Appraisal Reports
Guide to Appraisal Reports What is an appraisal? An appraisal is an independent valuation of real property prepared by a qualified Appraiser and fully documented in a report. Based on a series of appraisal
More information* Are the Public and Private Capital Markets Worlds Apart? M. Mark Walker, PhD, CFA, CBA
WINTER 2007/2008 THE INSTITUTE OF BUSINESS APPRAISERS, INC. Business Appraisal Practice In this Issue Editor's Column - Does a Historical Average, Weighted or Otherwise, Constitute an Income Forecast?
More informationPresenting a live 90 minute teleconference with interactive Q&A. Today s faculty features:
Presenting a live 90 minute teleconference with interactive Q&A Goodwill in Corporate Asset Sales: Maximizing Tax Planning Opportunities Distinguishing Between Personal and Corporate Goodwill, Navigating
More informationWHITE PAPER ON FUNDS FROM OPERATIONS
WHITE PAPER ON FUNDS FROM OPERATIONS FOR IFRS REVISED: SEPTEMBER 2010 Page 1 of 17 I. Introduction and Background TABLE OF CONTENTS II. III. IV. Intended use of FFO FFO Definition Discussion of FFO Definition
More informationEXPLANATION OF MARKET MODELING IN THE CURRENT KANSAS CAMA SYSTEM
EXPLANATION OF MARKET MODELING IN THE CURRENT KANSAS CAMA SYSTEM I have been asked on numerous occasions to provide a lay man s explanation of the market modeling system of CAMA. I do not claim to be an
More informationIMPORTANT UPDATED ADVISORY ON TAX SHELTER ABUSE INVOLVING CONSERVATION DONATIONS
IMPORTANT UPDATED ADVISORY ON TAX SHELTER ABUSE INVOLVING CONSERVATION DONATIONS All Land Trust Alliance (the Alliance ) member land trusts adopt and commit to implement Land Trust Standards and Practices
More informationLand Value Estimates and Forecasts for Reston. Prepared for Reston Community Center April 2013
Land Value Estimates and Forecasts for Reston Prepared for Reston Community Center April 2013 LAND VALUE ESTIMATES AND FORECASTS FOR RESTON COMMUNITY CENTER Purpose of the Analysis RCLCO (Robert Charles
More information